Two Gov't Reports Evidence Widespread Mortgage Fraud, Justify Mortgage Examinations
By Bob Hurt, 16 December 2012
Two salient reports, created at great government expense, detail the manner in which Government colluded with the Finance Industry to create a predatory lending, Mortgage-Backed Security (MBS), and Insurance racket that caused nationwide job loss, realty value collapse, and destruction of homeowner equities. Mortgagors have NO ability to use such reports to win respect from the courts. But some attorneys might. Right now America needs just a FEW GOOD ATTORNEYS.
Incidentally, I intended the title not as a slam against attorneys, but as a suggestion that it does not take much talent to fight foreclosure, drag out the inevitable loss, then lose, leaving the client with a much more massive debt than before, and with no home. It takes a lot of legal talent to fight and win against the mortgage itself, and the predatory lending that destroyed the client’s home equity.
- Financial Crisis Inquiry Commission (2009 – Feb 2011)
- Created by the Fraud Enforcement and Recovery Act (2009) ;Financial Crisis Inquiry Commission Report – Jan 2011, 633 pages
- History at Stanford
- Wikipedia Article
- US Senate Levin-Coburn Report – April 2011
From the dates of the reports the reader could surmise that foreclosure court judges have known of these for almost two years. And yet, we read NOTHING about these reports in the case histories of foreclosure battles. Why?
I believe these reports, published on US Government web sites, have become self-authenticating evidence of the fraud and racketeering that collapsed homeowner equities and jobs, and made it impossible for many to make mortgage payments. Every Foreclosure Defense attorney should serve the court with MADATORY JUDICIAL NOTICE OF THE ADJUDICATIVE FACTS which those reports delineate. As far as I know, NONE do.
One legal expert told me that they might serve as general evidence of fraud in the finance industry, but not as anything specific to any particularly loan. To that I must agree. But I believe principles of equity demand that courts heed the reports and use their content to justify loan cram-downs for those borrowers who can afford to make the resulting payments. And for those foreclosures consummated, the lenders should pay the lost equity to the injured borrower.
How the Financial Crisis Injured Mortgagors
Look at this clearly. The Finance Industry racketeering that caused job loss and collapsed realty values injured mortgagors terribly.
- Realty value collapse made mortgagors lose the equity they had accumulated in their homes. That meant the home constituted an investment. The lenders knew or should have known that their own behavior would precipitate the equity loss. But they used the massiveness of injury to widespread mortgagors to cloak the injury to each individual mortgagor. And the courts let them get away with it.
- Job loss affected a huge percentage of mortgagors, including those who had invested in rental residences to earn a living. People who lost jobs could not afford rents or mortgage payments and moved out in a kind of disgrace. Foreclosure abounded. Job loss constituted a huge injury.
- Those who could no longer afford the mortgage had to move out so as to live with relatives or in government or charity housing, or in a far less expensive place. They lost their homes, a terrible injury.
- Those who could not afford the mortgage got deceived by the lender’s fraudulent inducement into buying the house, only to lose it after discovering they could never have afforded it. And the loss to foreclosure destroyed their credit rating for years, a terrible injury.
Do NOT try to tell me that NO ATTORNEY HAS THE ABILITY to put these injuries and lender culpability for them into the evidence record of a foreclosure or tort/breach case.
For years I have preached “Attack the MORTGAGE, NOT the Foreslosure.” I have illustrated how lenders and their agents cheated mortgage borrowers with falsified loan applications, fraudulent appraisals, and various legal errors. Now I further illustrate the cheating through the evidence in the above two reports.
ABSOLUTELY NO QUESTION EXISTS as to whether ALL major mortgage lenders over the past 15 years have engaged in predatory lending and related fraud, contract breaches, tortious conduct, and flouting of regulations and laws related to making loans and collecting debts.
So, why don’t foreclosure defense attorneys have the chutzpah to hammer the courts with the above two reports?
For one thing, I believe most are too lazy or overworked to read them, over 630 pages each.
Second, I believe they cannot connect the evidence dots between the generalities of the reports to the specific behavior of lender in question and the mortgage loan in question. But I believe those dots exist with crystal clarity and any good lawyer should be able to connect them.
How to Show Lender Culpability for Equity Loss
To create specific lender culpability, the attorney must
- Enter both of the above reports into evidence through judicial notice, but specifically point to the hard, cold, irrefutable fact that the industry and government colluded in predatory lending practices that created the injurious financial crisis.
- Show that the lender for the instant mortgage belongs to the set of evil lenders in the above reports. For example, the reports specifically mention WAMU. Who now owns WAMU’s assets and liabilities? That lender therefore becomes a generalized predatory lender responsible to compensate the injured for WAMU’s errors.
- Discover whether that lender made any predatory loans at all in the past 15 years. This creates a presumption that the lender could have made many. Court records should reveal this
- Get the mortgage-related documents in question examined professionally. If the mortgage fraud examination report shows lender/agent malfeasance, then that proves the lender is still engaged in dirty tricks, part of a sweeping pattern of predatory lending that has endured for at least a decade
- Examine the record of foreclosures by the lender to discover how many judgment liens exist for large sums resulting from equity loss. Enter this into evidence in order to impugn the integrity of the lender, for it proves equity-related injuries to all those foreclosure victims, particularly when compared to similar foreclosures 15 years earlier
- Examine the foreclosure records of the instant lender for evidence of robosigning, fraudulent assignments, Pooling and Servicing Agreement or REMIC violations. These all show a generally scurrilous and abusive character of the lender’s board of directors and operating policy makers. They prove a pattern of racketeering.
- Examine compensation plans for the lender and draw a contrast to the borrower abuse such plans led to in WAMU. That is, show how the compensation plan encouraged executives to make predatory loans, thereby putting the instant lender into the category of lenders known as “predatory”.
A clever litigator could come up with a dozen more means of bringing to the court’s attention the corrupt behavior of the instant lender in the context of the two crisis reports above. And THAT will prove that the charges levied against lenders in that report APPLY TO THE INSTANT LENDER.
I believe the proper ambition here lies in using the courts to force lenders into cramming down ALL foreclosure-prone mortgage loans to a new balance equal to the actual value of the house minus all paid-in equity.
Valuation – Appraisal Issues
The above reports do mention widespread appraisal fraud as a factor in predatory lending. That fraud happens both officially and unofficially.
Officially, the USPAP (Uniform Standards of Professional Appraisal Practice) guidelines fail to include considerations that dramatically affect valuation, resulting in single family homes overvalued by as much as 30%. Unofficially, appraisers try to meet realtor/lender/seller price expectations, and typically overvalue the property, sometimes as much as 10% to 15%.
The estimate of actual value should include foreclosure auction prices and the potential income capitalization if rented out, which appraisers generally never consider. In other words, the lawyer should make the point to the court (and prove) that USPAP guidelines are essentially fraudulent for failure to include all of these elements in an appraisal:
- Market Value
- on the standard retail real estate market through realtors (including commission)For sale by owner market (no commission)Foreclosure sale market (foreclosure sales often bring only 30% to 50% of retail)
- Income property market (what a rental entrepreneur would pay for it)
- Income capitalization – what it would bring in rents. The typical home mortgage payment is 40% higher than the rental income the house would bring, and the owner would have to pay for all management, renewal/refurbishment, and repairs from rental income. This shows that the typical residence for sale is grossly overpriced.
- Replacement cost adjusted for the effect of lower interest rates and actual costs of land, labor, and building materials. Seasonal trends and the effect of interest rates must be eliminated from replacement cost calculation, and the appraiser should consider the cost from the point of view of a contractor, not one who would hire the contractor. Contractors tend to jack up their prices when interest rates collapse, as they did in 2002, and that falsely inflates replacement cost.
The appraisal industry owes a duty to consumers to show the actual value of real estate, not an exaggerated, overhyped, inflated value that favors realtors, builders, sellers, and lenders, but cheats the buyer/borrower. A good lawyer has to get the court to agree that USPAP favors realtors, builders, lenders (and appraisers) by failing to consider, weigh, and include in their calculations very important factors in home valuation which I have outlined above.
For example, since the financial crisis started hitting hard in 2007, causing massive joblessness and homeowner equity collapse, the ensuing foreclosures have thrown a glut of houses into foreclosure auctions. Those auctions have become a palpably real marketplace for buying houses a wildly low prices. One borrower called me in tears because she attended auction of the house in her foreclosed $128,000 loan. It brought $28,000. She said an investor bought and flipped it right away. THAT shows the actual value of the house, doesn’t it? Not $128,000, but $28,000. The appraiser, of course, would value it at $100,000 or more BECAUSE USPAP guidelines fail to include foreclosure auction prices in the appraisal method.
And that means the home-buying public pays unconscionably high prices for real estate, all because of phony appraisals. A decent lawyer could and should make this point a reality to the court.
My Challenge to the Legal Community Re: Mortgages
The time has come for lawyers to abandon foreclosure defense as a strategy and belly up to the bar of MORTGAGE ATTACK. The American community needs more Attorneys with the competence and courage to do whatever they find necessary to hold lenders accountable for
- destroying the mortgage victim-client’s homeowner equity, and
- forcing the client toward or into inability to make mortgage payments.
The Attorney’s FIRST STEP:
GET THE MORTGAGE-related DOCUMENTS EXAMINED for lender/agent
- Tortious Conduct
- Contract Breaches
- Legal Errors
All of these constitute injuries to the client, and those injuries resulted in damages.
The SECOND STEP
Find ways to connect the mortgage examination report to the two government reports at the top of this article, combining them into a package of evidence that shows obvious and intentional predatory lending practices by the lender.
Of course if the report shows no causes of action, you can still rely on the two government reports at the top of this article to prove lender culpability for client mortgage woes. Failing that, you can guide the client to the most painless way to exit from the house – short sale or keys for cash.
The THIRD STEP
Demand restitution such as a cram-down, the house free and clear, and walking money.
- Negotiate for a settlement for your client, or
- Sue the lender for the injury and demand awards for compensatory and punitive damages, legal fees, and sanctions against opposing counsel for knowing abuse of the rules or court.
The PERFECT Mortgage Strategy
I have given you the perfect mortgage strategy:
ATTACK THE MORTGAGE, NOT THE FORECLOSURE.
It should go without my saying that you will nearly always lose by attacking the foreclosure on the basis of assignment problems, robo signing, standing, lack of verification in the complaint, etc. Generally, the Plaintiff will fix those problems, refile or appeal, and win the foreclosure order. Meanwhile your client wasted money on your fees because the client loses the house in spite of your work.
Furthermore, the client could reason that your incompetence made him lose the house, and go after you for malpractice. Why? Two reasons.
Any good attorney knows it’s better to be the plaintiff DOG instead of the defendant DOG MEAT. Dog meat can never get the house free and clear, a cram down, or any other concession, unless the plaintiff or counsel acts like a complete bozo.
- Furthermore, if your client says “hey, they say I breached the contract,” YOU should EXAMINE CONTRACT AND ALL THE RELATED DOCUMENTS for causes of action against the lender so you can file a corresponding counterclaim or original tort/breach lawsuit. That way you make your client the DOG and the bank into the DOG MEAT.
If you fail to do that, but did something else, don’t YOU think you committed malpractice?
Let’s say a client came to you complaining that some other lawyer gouged him $5,000 to $20,000 and lost the house to foreclosure for breach of contract WITHOUT bothering to examine that very contract for evidence of lender fraud, torts, breaches, or legal errors. Wouldn’t YOU advise a malpractice action to recover damages from that attorney?
You need to do that exam in self-defense, or HOPE that your client has not read anything I’ve written on the subject.
How the Mortgage Exam Opens Your Practice to a HUGE Client Base
You should carefully consider the Mortgage Examination in light of your own business strategy. When you help destitute and desperate clients fight a foreclosure, you limit your client base to pretty much broke foreclosure victims who struggle to pay your fees.
But, imagine what happens when you help ALL mortgagors, including those who have excellent income and assets, and no problem paying their mortgages. YOUR EARNINGS become that much easier to make. Your client base can include those with the resources to pay your fees, including the examination cost. Many of them can easily afford to litigate.
When the exam reveals causes of action that can let them negotiate a cram-down, that means you can, over a period of years, save them many thousands of dollars with your service. Furthermore, they might feel very inclined to sue the lender as they realize their house value has dropped way below their present loan balance.
You can rely on the Financial Crisis reports that I named above AND the Mortgage Examination Report to convince the court that the lender injured your client egregiously, cheated the client in the mortgage process, and caused a massive loss of equity in the home afterward.
A competent attorney can win numerous compensatory and punitive damages awards, and legal fee awards for the client base. Here you will read an example of an attorney who did that for a foreclosure victim. Take note that lenders just as badly injured many mortgagors who have not faced foreclosure.
Brown v Quicken Loans
In the above case, attorneys Jim Bordas and Jason Causey won compensatory damages, legal fees, and a $3.5 million punitive damage award from predatory lender Quicken Loans. Of course, the victim, Ms. Brown, got to keep the house free and clear of any mortgage at all. Read the case details and imagine how YOU would feel with such a win. That would put ALL of your foreclosure defense wins to absolute shame, wouldn’t it?
Now, translate that win to your opportunities in the non-foreclosure base of predatory lending victims around your base of operations. VISUALIZE plucking overripe fruit from low-hanging branches. Imagine getting exams done for your present base of clients who suffered final foreclosure judgments. SEE yourself getting mortgage exams done, then negotiating with or suing lenders and getting big cash settlements from them.
You can create such a reality. And the Mortgage Examination makes it possible.
How to Examine the Mortgage
In a word, DON’T. Not by yourself. Not without the years of training and education it takes to develop the requisite competence and expertise. Even with such ability, the typical attorney simply cannot do the examination cost-effectively UNLESS a HUGE punitive damages award waits in the wings to justify it.
However, you can hire a professional examiner to do it for you, and pay less than $5K, usually FAR less. I do NOT mean loan audit, securitization audit, or appraisal audit here. I mean a full-blown examination of all the documents related to the mortgage, including note, mortgage, all closing papers, foreclosure complaints, correspondence, loan application, real estate purchase agreement, appraisal, EVERYTHING, sometimes between 500 and 2,000 pages.
The Professional Mortgage Examination requires that the client fill in a comprehensive questionnaire and non-disclosure agreement (NDA). The client scans in all mortgage-related documents and delivers them with Paypal payment and the NDA via the web. The exam will take 7 business days. Then the examiner will send you a report that delineates the causes of action and areas that you should investigate further.
Obviously an irregularity in client signatures might justify further inspection by an expert witness handwriting analyst, and a suspicious note/mortgage might need another forensic expert to inspect the original under a microscope or take fiber samples from the paper for testing and comparison with other actual originals. Or you might need to hire an expert witness appraisal reviewer to make a comprehensive study of the factors associated with the appraisal, if the initial exam report warrants it.
Why might you need additional experts? To testify in your local court, of course.
The Professional Mortgage Exam goes into sufficient breadth and depth to show a competent attorney the reasons (in the form of causes of action) to negotiate a settlement or sue. But it makes no sense to sue if the a settlement can please the client. And it makes no sense to hire expert witnesses unless you need them to testify, which never happens in a settlement negotiation.
How to Get the Mortgage Exam Report Styled as a Complaint
The Professional Examiner, a competent litigator, can style the examination report as a complaint, ready for filing in a court of the state where the realty sits. The examination firm offers this service only for licensed attorneys. This can become a big help to overworked attorneys.
How to Resell the Mortgage Examination Service
If you decide you want to offer the Professional Mortgage Examination as one of your services to the general public, you can order the report in generic form, WITHOUT the examiner logo or contact information. In that case you will need to collect all the mortgage documents already scanned in (or scan them yourself), collect the payment from the client, contract for the exam, pay the fee, deliver the scanned documents, and receive the report back for consultation with your client after 7 business days. You can, of course, mark up the service.
If You Need or Want a Mortgage Fraud Examination…
Contact me immediately by phone, email, or carrier pigeon. I will explains all the details to you and put you in touch with the examiner when you get ready to go forward. I charge nothing for this service. I do it AS a public service to any who ask.
WARNING: I do NOT function as law practitioner, lawyer, licensed attorney-at-law, or legal advisor. Construe my comments ONLY as speculation or general information, and NOT as legal advice for you or anyone else. Consult a well-qualified attorney (good luck finding one) in all questions of legality or law.
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